Is GM finished?

[not_so_new]

Funny how we keep hearing the phrase "too big to fail" at this moment in time, but never in the recent past have we heard anyone argue some being "too big to exist" (implying they're too big for their own good).

Oh and with all due respect I disagree with the premise of your quote above.

There are anti-trust laws on the books for just this purpose and even in the recent (recent is a relative word) past we have seen mergers blocked because of the potential harm that could come to the marketplace.

The unfortunate Like It Or Not situation we are in presently is that there ARE some companies that just might be too big to fail right now.

How we got to this point and how to prevent it in the future are up for debate but these are not the most pressing questions on the table right now. How we get out of this current crisis, on the other hand, is the most pressing question.

 

[Just thinking]

Oh and with all due respect I disagree with the premise of your quote above.

You may disagree ... but reality paints a different picture. My point (perhaps not too well articulated) was aimed at how we (as a nation/economy) have allowed structures such as GM -- financial institutions --- whatever, to increase in size to the point where if something fundamentally ruptures the infrastructure of said organization the result becomes catastrophic. It's one thing if the local diner up the street goes under, or even a chain of large department stores ... but when something gets as big as GM or Ford, we fall to the mercy of whatever it takes to keep them afloat. This, to me this is intrinsically flawed and should be avoided. But on and on they go, getting bigger and bigger until we see just how hurtful failure becomes. Of course, now it's "too late".

As a side note ... look at Japan. They have Toyota - Mazda - Subaru - Nissan - Honda - Suzuki. Or Germany with Mercedes - Volkswagen - Audi - Porsche - Opel. We've got too much tied up with only 3 manufacturers.

 

[Roadtoad]

Well, NSN, I DID read the whole of your post. And while I agree with a great deal of it, I'm still furious that GM's execs got huge payouts for their incompetence.

Consider it in this light: GM had made a deal to take over Fiat, but that deal did not include Ferrari and Maserati. Those two divisions of the Agnelli family's empire were off the table. When GM found out about this, having failed to follow through with due diligence, they balked. That's when they found out, having failed to follow through with due diligence, about a Put clause in their deal, that required them to pay the Agnellis for their failure to close the deal, which cost GM millions. You would have thought that Jack Smith, CEO of GM at the time, would have taken the time to actually read through what he was agreeing to, but he clearly didn't.

Then, let's consider earlier problems with GM: The fact that after losing over five BILLION dollars on one fiscal year, then CEO Roger Smith handed out huge bonuses to GM execs, justifying it saying that you just couldn't find experienced executives in the auto industry without paying out that kind of money. (I don't know: considering how "competent" experienced execs turned out to be, I think I'd have gone with cheap rookies.)

Then there was Lloyd Reuss, who kept saying "The market will save us!" Sorry, Lloyd, the market was passing you by. At the time, GM was making most of its money selling to Hertz, Avis, Budget, and other auto rental agencies. Why would you buy a new GM car, when you could go to a rental car company's resale yard, buy one that had finally had all the kinks worked out of it, was well maintained, and less than half what the dealer was charging? Add to that the cars GM was making at the time were cars that NOBODY WANTED! They were expensive, shoddy, unresponsive on the road, and in the end, overpriced. Hell, most of them didn't even had tachometers, something that's considered basic in cars from any other corner of the world. Road and Track, Car and Driver, Motor Trend, and any other automotive journal had been giving GM hell about that idiotic omission for ages.

So, Reuss was out. But, not really. Reuss was hired by GM as a consultant once he'd been canned as CEO, given a plush office, and a six figure salary. Consider this: Reuss lost GM BILLIONS of dollars. Would you, seriously, hire someone that goddamned incompetent? I wouldn't even hire him as a Wal-Mart greeter, much less to tell me how to build a profitable company!

Robert Stempel's problem wasn't so much competence as much that he couldn't get anyone to go along with the ideas he had to rebuild the company. Nor was he willing to take on the UAW, and tell them the unvarnished truth. He was a nice guy, which was his biggest problem. He had to be a hardnosed SOB in order to make things work.

Yeah, we could all be in that same boxcar, but we shouldn't have to be. Choices were made that shouldn't have been, simply because GM was "too big to fail." In the end, when it DOES fail, because of the greed of its executives, not because of anything the government has or hasn't done, the disaster will dwarf what might have happened if Pelosi and Reid had simply said, "Grow up, renegotiate your contracts, quit gutting your bank accounts, and build decent cars." Chances are, had GM sucked it up and started building quality products as they should have, while they might not have continued to be the world's largest industrial organization, they'd have been one of the best.

 

[Roadtoad]

Addendum: That's why Fiat is now referred to as: "Finance it again, Tony."

 

[Just thinking]

How we got to this point and how to prevent it in the future are up for debate but these are not the most pressing questions on the table right now. How we get out of this current crisis, on the other hand, is the most pressing question.

True enough ... but if we do keep them afloat and yet allow them to remain huge (too big) ... it can happen again. And what do we do then?

 

[steve s]

I don't understand the craze over japanese cars. People should buy american cars!

My Honda Civic was built in Ohio. Maybe I should have bought that Ford Fusion I test drove. It was built in Mexico.

Steve S.

 

[Furcifer]

I don't like any of this, I REALLY hate the idea of my tax dollars going to help these companies who drove their businesses into the gutter through their own short sightedness and greed.

GM got themselves into this mess, if these were ordinary times and I had my way I would say let them fail completely.... but in case we haven't noticed.... these are not ordinary times.

This is where I weigh in and finally say no. I'm tired of people regurgitating this "It's there own fault" nonsense. Who bought the damn gas guzzling SUV's? Who financed it?

GM responded to American demands for gas guzzling automobiles, plain and simple. No one forced anyone to buy them, there were plenty of economy vehicles to be bought! Americans chose to buy them, the free market dictated that they continue to sell vehicles to ignorant American to remain competitive. Had GM sat down and said "Hey, let's stop building vehicles that get less than 30 mpg and only sell what the American populous really needs" they would have cut themselves out of the game. Don't you think there were intelligent people saying this years ago? Do you really think no one foresaw the $4 gallon and said lets build a smaller car? Can't you wrap your head around the fact that gluttonous Americans demanded big cars they couldn't afford and that's what caused this? It's so typical of Americans to blame someone else for their own short comings. It's a free market, it's the markets fault, not the suppliers.

The only way for them to have avoided this would have been to sit down in the mid 90's and all 3 agree to only produce what Americans NEEDED, not what they WANTED. Fat chance of that.

Finally, I'm not a big Union fan. Although I owe my health, education and general well being to the Union (my father worked for and retired from DCX) I agree they are partly responsible for making the NA automakers not competitive in the current market. Not for demanding fair pay and benefits for their members, but for protecting idiots from discipline. Anyone who has worked in these plants knows that 90% of the Unions effort goes to protecting the worst 10% of their members. Most workers go into work, do their job and go home. They never need to see their rep or call upon their services. It's the idiots who never come to work, do a piss poor job and whine like babies about everything that need representation. The Union protects the worst workers in the plant, that's their failing. If the Union took the initiative to help discipline their members and get rid of the bad seeds, the NA manufacturers would see an instant 10% increase in efficiency and productivity. This is based on my experience having a parent who worked on the line for 33 years, my having worked on the line for 5 years and supervising for 1 year.

 

[not_so_new]

And you guys just made my points. Strange as it sounds I am on the same page with you all for the most part.



Seriously, Roadtoad, 3bodyproblem and Just thinking all came to the bottom of what I am saying from different angles.

Roadtoad, I DO agree that the execs were to blame and I AM really pissed off about it. In fact for 10+ years I have been saying to anyone who would listen we are on the road to failure in the back seat of GM, Ford and Chrysler. They are on an unsustainable business track that any human with average intelligence could see from a decade away.

But I also think the government has some blame to take as well. For years and years the auto lobbyists have blocked any sort of progress in CAFÉ standards, the auto industry fought tooth and nail against seat belts, crash test ratings, CO2 emission standards, hybrid cars, the list goes on and on. Government caved in to these lobbyists, they (the Government that is meant to protect us from ourselves) should take some of that heat as well. The auto lobbyists, in bed with the oil lobbyists are a major part of our problems today.

YES they all got too big to fail but they did it on the backs of their lobbyists and by using the massive amounts of money they have at their disposal. They deserve what they have coming to them….. BUT at what cost? I might just end up suffering more if they go down the drain. What is worse for me, paying for a GM bailout until I am in my 80's (I am 40 now) or the economy completely tanking and the possibility that I lose my job now? I just don't know what to think but we are in IT and we need to get out of IT. If that means people smarter than me feel we need a bailout then so be it, but I want something in return. I want companies that are more aligned with my views.

 

[not_so_new]

3bodyproblem I DO think the American people are partly to blame, but maybe in part for only being gullible. There is a good bit of circular thinking going on right? The car makers were "only making the cars the public wanted" but they also were pushing the cars they were making to the public and building enthusiasm in product lines that we not sustainable.

That is the POINT of marketing right, create excitement about your companies products? And the marketing arms of the auto makers are some of the best in the business.

How is it that Honda, Toyota, Subaru, BMW etc. are down in sales but not down and out like the Big 3? Because their business model didn't rely as heavily on a market segment that was doomed for failure.

YES the American people take some of the blame but good marketing by the American car companies fed part of that "need" for larger automobiles as well.

So that leads to the fact that GM's top management are a bunch of idiots at best or shortsighted greedy criminals at worst. As I said in a post above, one of the terms for any bailout in my eyes must be the complete suspension of any and all golden parachutes as well as a massive reduction in executive salaries. They should not be rewarded for the extremely poor management of the companies they ran. In fact it was suggested by some that the whole management structure of these companies should be canned, that might not be a bad place to start.

The gullible American consumer should take the heat, the government is part of the problem and the Big 3 lead them both around by the nose until we reached a small windowless cinderblock room with only one exit. Shame on all of us.

AGAIN. ALL of the above is talking about how we got here and what we need to do to not go down this road again. I am trying to point out that we need to deal with the situation as it is now because we are in crisis mode here.

 

[Damien Evans]

I own an older Astra. Quite zippy for a small 4, handles well, but the quality is not up to Japanese standards. Made in Belguim, from what I have heard, or Hungary.

In the early 90's they were made in Korea for a couple of years. They were Daewoos rebadged as Holdens.

 

[drkitten]

This is where I weigh in and finally say no. I'm tired of people regurgitating this "It's there own fault" nonsense. Who bought the damn gas guzzling SUV's? Who financed it?

GM responded to American demands for gas guzzling automobiles, plain and simple. No one forced anyone to buy them, there were plenty of economy vehicles to be bought!

And who was buying them, then?

Americans chose to buy them, the free market dictated that they continue to sell vehicles to ignorant American to remain competitive. Had GM sat down and said "Hey, let's stop building vehicles that get less than 30 mpg and only sell what the American populous really needs" they would have cut themselves out of the game.

I dunno. I think that's more or less exactly what Toyota and Honda did, don't you?

Why was it a good idea for Toyota and Honda to predict long-term market trends and to prepare for them, but a bad idea for GM?

How did Toyota and Honda manage to avoid "[cutting] themselves out of the game"?

 

[Prometheus]

Before blaming "the American people" and insisting that "we" must share the cost of bailing out the Big 3, please keep in mind that "we" includes millions of Americans like me, who stopped purchasing Detroit's over-priced, under-performing crap decades ago. "We" includes quite a lot of people who have voted with our dollars for a change in the cars they built, and often voted on election day for any politician who even talked about bringing about such change, but it "we" were ignored.

I'm sorry, but I don't feel the slightest bit responsible for this problem, and I vehemently disagree with anyone who suggests that so much as a dime of my taxes be used to bail them out. Let them die; I'm quite happy to continue driving my American-made Honda.

 

[not_so_new]

Before blaming "the American people" and insisting that "we" must share the cost of bailing out the Big 3, please keep in mind that "we" includes millions of Americans like me, who stopped purchasing Detroit's over-priced, under-performing crap decades ago. "We" includes quite a lot of people who have voted with our dollars for a change in the cars they built, and often voted on election day for any politician who even talked about bringing about such change, but it "we" were ignored.

I'm sorry, but I don't feel the slightest bit responsible for this problem, and I vehemently disagree with anyone who suggests that so much as a dime of my taxes be used to bail them out. Let them die; I'm quite happy to continue driving my American-made Honda.

I don't disagree with the sentiment, I don't like American car designs, I dispise American car makers and I have also voted with my wallet on this very issue years ago.

That said….

What IF GM fails and it is the last straw to a very shaky economy? What IF saving GM IS the best way to avert a much larger downturn?

No matter how opposed to it we may be is there a chance that it be in our own interest to get GM going? If this is the case would it be better to take a small hit over a long time than a massive hit today?

I don't know about you but this economy is starting to scare me, I am worried for my job, my house etc. I don't think it is a good idea to go looking for people to punish for past mistakes.

We are heading into uncharted territory here. No one really knows what lies ahead, much of this is unprecedented. Are you SURE that GM is not the corner stone holding back the avalanche of another Great Depression (in capitals)? Isn't it worth something to try and avert that?

 

[Francesca R]

"Fun" fact--the carmaker in the US with the largest market cap by quite a long way is the one that makes Matchbox (toy) cars. (Mattel)

 

[Prometheus]

I don't disagree with the sentiment, I don't like American car designs, I dispise American car makers and I have also voted with my wallet on this very issue years ago.

That said….

What IF GM fails and it is the last straw to a very shaky economy? What IF saving GM IS the best way to avert a much larger downturn?

No matter how opposed to it we may be is there a chance that it be in our own interest to get GM going? If this is the case would it be better to take a small hit over a long time than a massive hit today?

I don't know about you but this economy is starting to scare me, I am worried for my job, my house etc. I don't think it is a good idea to go looking for people to punish for past mistakes.

We are heading into uncharted territory here. No one really knows what lies ahead, much of this is unprecedented. Are you SURE that GM is not the corner stone holding back the avalanche of another Great Depression (in capitals)? Isn't it worth something to try and avert that?

As yet, I've not seen anything that looks like evidence that that might be the case. If GM fails, it will certainly hurt a lot in the short term, but a bail-out won't solve anything; it'll just postpone the inevitable. It would be better if the government took any proposed bail-out money and offered it as loans to companies like Honda, on condition that they use it to build new factories in the U.S. and hire some of the workers who were formerly with GM.

 

[Francesca R]

It would be better if the government took any proposed bail-out money and offered it as loans to companies like Honda, on condition that they use it to build new factories in the U.S. and hire some of the workers who were formerly with GM.

Does Honda need a loan or equitisation from the US government? Why?

 

[Prometheus]

Does Honda need a loan or equitisation from the US government? Why?

I have no idea whether they need a loan or not. I'm suggesting that if the US government wants to do something to lessen the pain of GM collapsing, some sort of incentive to other automakers to hire some of GM's employees would be better than spending the same money trying to keep GM afloat.

 

[CriticalThanking]

"Fun" fact--the carmaker in the US with the largest market cap by quite a long way is the one that makes Matchbox (toy) cars. (Mattel)

And IIRC, there was a report on NPR a few years ago that there are more Little Tikes cars sold in the US than regular automobiles.

CT

 

[not_so_new]

As yet, I've not seen anything that looks like evidence that that might be the case.

What, that the economy is failing? Or are you saying that a GM collapse is just a drop in the bucket? Because I disagree with both.

I said it earlier in this thread, a GM failure is more than just 2 or 3 million lost jobs (as if that were not enough). Their failure would be significant on the general mood of the economy. A good part of the problems we face are fear and confidence based. Yes Wall Street investors and even most folks on main street "know" that GM is on life support but they don't "really know" it until it happens if you get my drift.

Often the things that we are already waiting for still surprise us or greatly effect our mood when they do come to pass. A GM closure would be a VERY hard to ignore sign that the economy is in real danger and could cause already slow consumer purchasing to completely dry up.

If GM fails, it will certainly hurt a lot in the short term, but a bail-out won't solve anything; it'll just postpone the inevitable. It would be better if the government took any proposed bail-out money and offered it as loans to companies like Honda, on condition that they use it to build new factories in the U.S. and hire some of the workers who were formerly with GM.

I actually agree with a good bit of this (with the exception of the loan to Honda etc, I don't think they are asking for it and I don't think giving them one would guarantee any new jobs).

Anyway, I don't know if quick money now can going to hold back the flood gates on a company that has practiced bad business habits for decades. My bet is that with or without a bailout GM might just be toast.

I have no clue what the solution is, I am just afraid of what 2 or 3 million lost jobs would do to this already failing economy and what the fallout would be of a GM bankruptcy on already dismal consumer confidence front.

 

[Prometheus]

What, that the economy is failing? Or are you saying that a GM collapse is just a drop in the bucket? Because I disagree with both.

I wasn't making a claim. I was questioning the idea that GM might be, "the corner stone holding back the avalanche of another Great Depression."

I'm not saying they aren't. I'd just like to see something in the way of evidence. I don't see that it's any more prudent to give them billions on the chance that maybe they're some sort of economic lynchpin, than to gamble that maybe they're not as important as all that and save the money instead.